Suren Ratwatte, the chief executive of indebted, overstaffed, multi-billion rupee loss making Sri Lankan Airlines, has admitted having excess corporate fat, while sidestepping a question on how costs would be cut, in an interview with a US business news broadcaster. Staff costs at the airline which employs 6,959 people, runs into billions and it has [...]

SriLankan chief admits need to trim fat, but won’t say how

From Kapila Bandara in Hong Kong

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Suren Ratwatte, the chief executive of indebted, overstaffed, multi-billion rupee loss making Sri Lankan Airlines, has admitted having excess corporate fat, while sidestepping a question on how costs would be cut, in an interview with a US business news broadcaster. Staff costs at the airline which employs 6,959 people, runs into billions and it has been awarding generous 13% annual salary increases in some cases.

Asked by US business and financial news network Bloomberg TV this week about “a lot of fat you got to cut”, Capt Ratwatte replied, “arguably yes,” and appeared to justify unsustainable losses at Sri Lankan Airlines by comparing its situation to “significant competitors, Gulf carriers among them”. He added that the group businesses of those airlines “cross subsidises parts of it”.

But, Gulf carriers such as Emirates and Etihad have not continued to report multi-billion dollar losses for decades and are not known for employing cronies and pals. For the 2016-17 financial year, Emirates profit fell by 70% to US$670 million from record profit the year before.

Revenue grew by 2 percent to US$25.8 billion. Etihad Airways booked a net loss of US$1.87 billion on US$ 8.36 billion in revenues for 2016. This was largely attributed to one-off impairment charges of US$1.9 billion including a US$1.06 billion charge on aircraft, and fuel hedging losses. The core airline business booked passenger revenues of US$4.9 billion and 79 percent load factor. It carried a record 18.5 million passengers. Yields fell by 8 percent, but it was partially offset by an 11% reduction in unit costs.

CEO Ratwatte, also boldly predicted that the carrier will make profits “this year”, gave himself and his team a pat on the back for beating “revenue forecasts every month”, while admitting costs cuts are necessary. “At air transport level, making a profit in our region is going to be very difficult in the short term. However, at group level with ground handling, catering and engineering business, we are in a position to become profitable this year, once the restructuring goes through.”

In reality, the airline in haemorrhaging public money. The number of passengers Sri Lankan Airlines flew dropped last year and group revenue and company revenues both slumped. Group loss was Rs 12.08 billion in 2015-2016 and company loss was Rs 12.62 billion, down from 16.49 billion in 2014-15. The loss slightly narrowed, helped by factors such as very low fuel costs. Revenue per employee also fell. In October last year, chairman Ajith Dias is on record saying that the airline has “realigned” its “strategic focus to Asia, from the Middle East to the Far East”. He said this was because Sri Lankan Airlines sees “excellent opportunities in this high-growth region.” He predicted also that this would be “profitable for the airline.”

A carrier without capital, but a big spender on perks, luxuries and costly aircraft, Sri Lankan Airlines has instead negative equity of Rs 87.78 billion.

CEO Ratwatte repeatedly told Bloomberg TV that costs should be cut.

Company employee costs have increased to Rs 10.69 billion from Rs 9.21 billion. Crew expenses have risen to Rs 11.53 billion from Rs 10.64 billion. These two costs, the biggest by far, excluding fuel costs, even exceed rentals on aircraft leases.

Despite multi-billion rupee losses, Mr Dias and CEO Ratwatte, have presided over 10% salary increases for senior staff in 2015, and a 3% rise in 2016. They also awarded a 13% rise for non-senior staff in 2016 and a 10% increase in 2015.

CEO Ratwatte expressed hope of a turnaround and sounded elated about flights to Melbourne, Australia.

“We are still expanding quite significantly into India and also Australia starting October 29, we launch most of the services to Melbourne, which I think will be a huge boost for the traffic between Australia and Sri Lanka, which have been growing year-on-year quite strongly. So it is not all doom and gloom, there’s still hope out there. It’s just trying to rejig the business and pivot to a more regional focused network rather than, the more ambitious European trade that we were in so long.”

He complained of not having capital to grow the business. “Expansion is on the cards. I need more aircraft. Unfortunately, capital is the problem. The Government is obviously not in a position to pump capital into the airline.”

Asked about the pace of restructuring, he said: “The government does seem to move slowly, you’re right. This is a fast-moving business as you know. If you don’t act very quickly, I’d say in the next six months we need to get this thing sorted, we are going to be left behind as more and more capacity is added to the market and we lose market share.”

Responding to a question on the Sirisena-Wickremesinghe government’s plans on finding suitors for the airline, including, oddly, a potential public stock offering, he chuckled and added: “… well, the Sri Lankan Government works in mysterious ways, shall we say. And it’s sometimes best left alone.

“I do have a small management team. We are maxed out trying to do what needs to be done in the short-term to keep the airline going. And I have to say, the last couple of months have been very good. We’ve beaten revenue forecasts every month of the financial year. So things are turning around. Our big problem is the cost base. We got to reduce the cost base. If we can do that, we’ll be profitable this year.” He did not say what those revenue forecasts were. They can be set low for obvious reasons.

Bloomberg TV anchor Rishaad Salamat’s question from the Hong Kong studio on plans for an initial public offering for an airline that has been posting massive losses for decades was bizarre.